California Court Allows AML-Based Claim Against Crypto.com to Proceed in Elder Fraud Case
A recent federal court order issued in Lee v. Foris DAX, Inc. (Crypto.com) provides an unusually thorough roadmap for how courts are analyzing elder fraud claims involving cryptocurrency platforms—and where those claims succeed or fail. While the Northern District of California dismissed nearly all claims against Crypto.com and the failed bank involved, it allowed one significant claim to move forward: an Unfair Competition Law (UCL) claim based on alleged violations of the Bank Secrecy Act (BSA) and federal anti-money-laundering (AML) regulations.
The decision is notable not only for what it permits, but for the clarity with which it explains why most traditional fraud theories break down when applied to cryptocurrency exchanges.
The Alleged Scheme and Losses
Plaintiff Jung Min Lee alleged that her husband, Patz—who is over the age of 65—was targeted by an online “pig-butchering” cryptocurrency scam. According to the complaint, scammers persuaded him to withdraw nearly $1 million in community property funds from accounts at First Republic Bank and transfer those funds into accounts at Crypto.com, where the money was converted into cryptocurrency and sent to wallets controlled by unknown fraudsters.
Lee sued Crypto.com, First Republic Bank (through the FDIC as receiver), and a bank employee, alleging that each defendant enabled the scam by aiding and abetting fraud, receiving stolen property, and engaging in unlawful business practices under California’s UCL. She also framed the conduct as financial elder abuse.
The court first addressed the claims against the FDIC (as receiver for First Republic Bank) and the individual bank employee. Those claims were dismissed for lack of subject-matter jurisdiction under FIRREA, the federal statute governing claims against failed banks.
Under FIRREA, claimants must submit claims through the FDIC’s administrative process by a strict deadline. Lee filed her administrative claim more than a year after the claims bar date. The FDIC disallowed the claim as untimely, and the court held that the narrow statutory exception for late-filed claims did not apply.
Judge Orrick emphasized that the FDIC’s administrative claims process is jurisdictional, meaning courts simply lack power to hear claims that were not timely exhausted. Because the FDIC had published notice of the receivership in major national newspapers—and because the collapse of First Republic Bank was widely reported—the plaintiff was at least on inquiry notice. As a result, all claims against the FDIC and the bank employee were dismissed with prejudice.
The court then turned to the claims against Crypto.com, focusing first on aiding and abetting fraud, conversion, and trespass to chattels.
California law sets a high bar for aiding-and-abetting liability. A plaintiff must plausibly allege that the defendant:
- Had actual knowledge of the specific underlying tort, and
- Substantially assisted in its commission.
The distinction between what a defendant “must have known” and what it merely “should have known” was central to the court’s analysis.
Lee alleged that Crypto.com possessed advanced blockchain analytics, had access to extensive transaction data, knew about the prevalence of pig-butchering scams, and should have recognized that the volume and frequency of Patz’s transactions signaled fraud. The court rejected those arguments.
Unlike cases involving traditional banks and long-time customers, Crypto.com had no prior transactional history with Patz before January 2023. He was not a long-standing customer whose behavior suddenly changed. Without a baseline, the court held, Crypto.com could not infer that his activity was “erratic” or “uncharacteristic” in the way required to show actual knowledge.
The court also distinguished prior cases, such as Lin v. JPMorgan Chase Bank, where bank employees processed multiple large wires for an elderly customer over a short period while ignoring clear red flags tied to long-standing account history. Here, Crypto.com was not a bank, owed a lower duty of care, and actually contacted Patz during the transactions to ask whether he was being scammed. He responded that he was participating in an investment opportunity.
Those facts defeated any plausible inference that Crypto.com must have known fraud was occurring. As the court put it, generalized awareness of scams and sophisticated technology does not substitute for actual knowledge of a specific fraud. The aiding-and-abetting claims were therefore dismissed with prejudice after multiple amendments.
Lee also alleged that Crypto.com unlawfully received stolen property under California Penal Code § 496. That claim failed for two independent reasons. First, the court held that the funds were not “stolen” at the time Crypto.com received them. Under California law, property must already have the character of being stolen when the defendant takes possession. Here, the theft was not complete until the scammers ultimately controlled the funds. Second, the claim again failed on actual knowledge. The complaint did not plausibly allege that Crypto.com knew the funds were stolen when it processed the transactions. The court dismissed this claim with prejudice as well.
The Most Important Part of the Ruling
The most consequential part of the ruling involves the unlawful prong of California’s Unfair Competition Law.
After rejecting numerous proposed predicates—including elder abuse statutes, false advertising laws, the CLRA, wire-fraud statutes, and federal consumer protection acts—the court concluded that one theory was plausibly alleged: that Crypto.com violated the Bank Secrecy Act and related AML regulations.
Lee alleged that Crypto.com, as a registered money services business, failed to:
- implement and maintain an effective AML program,
- conduct adequate customer due diligence,
- comply with the Travel Rule’s recordkeeping requirements, and
- integrate AML controls with automated transaction-monitoring systems.
Importantly, the court rejected Crypto.com’s argument that BSA violations cannot serve as the basis for a UCL claim simply because the BSA lacks a private right of action. Under California law, a statute may serve as the predicate for an unlawful UCL claim unless it expressly bars private enforcement. The Bank Secrecy Act does not.
Judge Orrick acknowledged that this theory places the case in “uncharted waters,” particularly as applied to a cryptocurrency exchange, but emphasized that Crypto.com cited no authority foreclosing such a claim. At the pleading stage, the allegations were sufficient.
As a result, Crypto.com’s motion to dismiss was denied as to the BSA-based UCL claim, and the case will proceed on that narrow but potentially significant theory.
Why This Decision Matters
This order illustrates the limits of traditional fraud and aiding-and-abetting claims against cryptocurrency platforms, especially where proof of actual knowledge is required. At the same time, it signals a growing judicial willingness to scrutinize whether crypto exchanges are complying with federal AML obligations designed to protect the financial system—and vulnerable consumers—from misuse.
For victims of elder fraud involving Crypto.com or similar platforms, the decision highlights a viable litigation path when other theories fail. For exchanges, it underscores that AML compliance failures may carry civil exposure, even in the absence of direct participation in a scam.
Did You Lose Money on Crypto.com?
If you or a family member has suffered losses involving Crypto.com or another cryptocurrency platform, early legal review is essential. Elder fraud and crypto-related cases turn on complex regulatory and factual issues that must be preserved from the outset.
MDF Law represents victims of cryptocurrency fraud and financial exploitation nationwide. Contact us today for a confidential consultation to evaluate potential claims and next steps.